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IoD: April’s NICs rise will add further fuel to the inflationary fire

15 Dec 2021


On the day that the ONS publishes data showing that annual CPI inflation was running at 5.1% in November, the Institute of Directors releases new survey data showing that the forthcoming rise in employers’ national insurance contributions is itself likely to be inflationary, as well as having a negative impact on employment and investment.

When asked how their organisation might respond to the forthcoming rise in national insurance contributions, 38% of business leaders cited ‘We will raise prices to offset some, or all, of the cost’. A substantial minority (19%) said they would employ fewer people. More firms said they would reduce investment (15%) than would increase investment in technology (10%). Only 29% said they were in a position to absorb the cost increase.

Kitty Ussher, Chief Economist at the Institute of Directors, said:

“Inflationary expectations are rising fast among business leaders, and this should be a cause for concern to policymakers. To make matters worse, we now know that the government’s own decision to raise employers’ national insurance in April 2022 will add further fuel to the inflationary fire, as well as having a noticeable impact on hiring intentions.

“We also find evidence that the NICs rise will exert a downwards pressure on business investment,  in line with independent research from the National Institute of Economic and Social Research published in October.”


Full survey results

580 respondents, conducted between 12th-29th November 2021

The government plans to increase national insurance contributions from 13.8% to 15.05%. Which, if any, of the following statements reflects how your organisation might respond to this change, if at all? Please select all that apply.

We will employ fewer people

19%

We will reduce the wages we pay

4%

We will increase the wages we pay to compensate staff

8%

We will reduce planned investment

15%

We will increase investment in technology

10%

We will raise prices to offset some, or all, of the cost

38%

We will absorb the cost increase

29%

The National Insurance change will make no difference to my organisation

20%

Don't know

4%

Other (please specify)

3%

What do you think the annual rate of inflation will be by the end of next year? That is, by the end of 2022.


Oct ‘21*

Nov ‘21

At or below the Bank of England’s target of 2%

12%

11%

Between 2% and 4%

59%

42%

Higher than 4%

37%

45%

* 608 respondents, conducted between 13th-29th October 2021.  


References

The National Institute of Economic and Social Research (NIESR) published analysis of the impact of the  Government’s planned increase to National Insurance Contributions in October, ‘The New Employment Tax’. This research is independent but was part-funded by the Institute of Directors.

The Office for Budget Responsibility (OBR) analysis of the impact of the NICs rise is on page 28 of the October 2021 'Economic and Fiscal Outlook'.

Contact Press office

Hugo Legh, Media and Communications Lead

0208 078 4138


Press office

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